Problems With Crowdfunding: 7 Hazards to Watch Out For (2024)

There are numerous issues with any investment opportunity that you pursue.

With bank loans you have to be sure to pay back the loan, or face bankruptcy and assets being seized to pay off your debts; with investment angels you may lose some control of your business; and with family and friends there is the stress of using their money in a business that can potentially fail.

Crowdfunding almost seems risk free when compared to these options.

There is no-one vying for control of your business, no money to pay back and few personal relationships can be damaged because part of the agreements include a fulfillment reward which often satisfy the contributors.

However, there are still issues that crowdfunders need to be aware of.

Without knowing what these problems are, you won’t be able to take action to prevent them negatively affecting your crowdfunding campaigns.

Trust is probably the biggest issue when it comes to crowdfunding:

When you are a brand with no prior record, you have to consider how you can generate enough brand credibility with investors.

Without trust you might not generate enough interest in your campaign and fail to meet your targets.

Yet this is not always the case.

A report in 2014, from Pando Daily, identified a potential fraudulent campaign. It stated that the campaign run by Healbe GoBe had many flaws.

Firstly, the business is advertised as being based in San Francisco, but research found them to operate out of Russia. Another problem came with their claims on measuring calories. Both professional clinicians and those testing the device have proposed their methods are questionable.

Despite these concerns however, the campaign secured over $1 million in contributions.

The rise of crowdfunding has seen numerous businesses offer services to the business community to help manage campaigns.

For some, this seems like a positive move, the greater the options in the market, the more competitive these companies will be and the better service they should provide.

But it doesn’t always work like this. So choosing the right platform is essential.

There are several things to consider when choosing the right platform for you, including:

• The number of visitors they attract
• The type of visitors they attract
• Costs for running the campaign
• Their terms and conditions

The most popular, or well known crowdfunding sites are Kickstarter and Indiegogo, but there are many alternatives to Kickstarter and the like. Depending on your project, you’ll want to consider how to choose the best platform for your needs.

Another common problem often faced by crowdfunders is setting up the right targets and the time to achieve the goal.

If you don’t get the setting right then you can dissuade contributors providing you with contributions or not gather enough attention to your campaign to meet goals.

Building interest is also a common fail point in the crowdfunding experience.

The biggest mistake is when businesses create their campaign first and then to try to generate interest. This is far too late and eats into your time until you have to reach your goal.

Instead, you need to build interest in your campaign at least three to four months prior to your campaign starting. This will help you to get an initial large boost to your goal.

And, in today’s world, building interest to your campaign can include the world, as there are often backers worldwide.

This is one area that is so important.

Your brand image is hanging on your ability to not just deliver the crowdfunding goal, but also to provide contributors with their rewards in a timely manner.

Some problems that can be associated with fulfillment include:

• Not budgeting for it
• Not budgeting for postage and packaging
• Offering too many options that increase time to delivery and confuse contributors

Find out more how floship helps you throughout your campaign to ensure that you are prepared for fulfillment and can process orders for backer no matter where they live.

Moreover, Floship offers another way you can build trust with backers and avoid problems once it’s time to deliver your goods, pre-campaign it is useful to get certified with a Floship Certified Logistics Plan and add the badge to your Kickstarter or Indiegogo campaign page.

This topic is about individuals who are looking to steal your ideas and then fund their own projects to beat you to market.

Some people look through projects to create and complete theirs before the original campaigner does.

To stop this you need to use private chat areas to discuss projects, non-disclosure agreements and constant monitoring of who is looking at your data and for how long.

There is also the concern that you have unwittingly infringed on other copyright issues, or patents, even worse is having to deal with patent trolls.

The only protection from this is to ensure that you have had a lawyer check your project is legally protected.

There is a huge amount of uncertainly when it comes to the accounting rules for funds raised through crowdfunding.

Should they be declared as an income or as capital?

The answer will tend to be different depending on which expert you ask. Also, states in the US will have their own rules on how this money should be taxed.

So always seek out a highly qualified expert to advise you.

Crowdfunding is an excellent way to generate funds for your new business or project.

It avoids some of the most undesirable issues that can be found with other fundraising projects but it does have some of its own.

By knowing what these issues are you can reasonable find ways to avoid or solve them, without it costing you later on.

Remember to give this a like if you found it helpful :)

Originally posted on the Floship crowdfunding blog.